Case Law Details
EPS Financial Services Pvt. Ltd. Vs ITO (ITAT Kolkata)
The assessee filed appeals for Assessment Years 2016-17 and 2019-20 against orders of the National Faceless Appeal Centre. The Tribunal considered separate issues for each assessment year and ultimately allowed both appeals.
Assessment Year 2016-17
The first issue concerned an addition of ₹2,25,55,000 made under Section 68 on account of alleged unexplained share capital and share premium received from M/s Himalaya Vyapaar Pvt. Ltd. and M/s Maroon Infrastructure Pvt. Ltd.
The assessee, a Non-Banking Financial Company (NBFC), had filed its return declaring income of ₹4,610. During assessment proceedings, the Assessing Officer observed that the assessee held substantial shareholdings in the two companies and noted that their registrations had been cancelled by the Ministry of Corporate Affairs. Based on the balance sheet, the Assessing Officer treated ₹2,25,55,000 as unexplained cash credit and added it to income.
The Tribunal examined the audited balance sheets as on 31.03.2015 and 31.03.2016 and found that the share capital remained unchanged at ₹4,94,15,000 in both years. It also noted that there was no change in current liabilities. Accordingly, the Tribunal held that no share capital or share application money had been received during the relevant year and that the addition was based on the Assessing Officer’s assumptions rather than the records. It further observed that the basis of the addition differed from the issue raised in the notice. The addition of ₹2,25,55,000 was therefore deleted.
The second issue related to an addition of ₹1,17,85,143, being notional interest computed at 8% on advances reflected in the balance sheet. The Assessing Officer noted advances aggregating to ₹16,73,14,286, including ₹14,73,14,286 advanced to M/s Avani Projects for purchase of property and ₹2 crore advanced interest-free to M/s Shakti Associates.
The Tribunal found that the advances had been made out of the assessee’s own interest-free funds and that no borrowed funds carrying interest had been utilized for these advances. It held that the addition was based merely on surmises and presumptions and lacked any valid basis. Consequently, the addition was deleted.
Assessment Year 2019-20
The principal issue concerned the validity of the notice issued under Section 148 and the consequent reassessment proceedings.
The assessee had filed its return of income declaring total income of ₹34,23,650. Subsequently, a notice under Section 148 dated 18.04.2023 was issued by ITO Ward 13(1), Kolkata, leading to reassessment and an enhanced assessed income of ₹96,37,501.
The assessee challenged the jurisdiction of the officer issuing the notice. It was argued that, under CBDT Instruction No. 1/2011 dated 31.01.2011, an Income Tax Officer in metro cities has pecuniary jurisdiction only where returned income does not exceed ₹20 lakh. Since the assessee’s returned income exceeded ₹20 lakh, jurisdiction lay with the Deputy Commissioner or Assistant Commissioner and not with the ITO.
The Tribunal accepted this contention. It held that the notice under Section 148 had been issued by an officer lacking pecuniary jurisdiction under the CBDT instruction. Relying on decisions of the Calcutta High Court and earlier Tribunal rulings, the Tribunal concluded that the notice was invalid and that the consequent reassessment proceedings could not survive.
Accordingly, the notice issued under Section 148 and the resulting assessment were quashed.
The Tribunal allowed both appeals of the assessee.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
These are appeals preferred by the assessee against the orders of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”]vide even dated 09.01.2026 for A.Ys. 2016-17 and 2019-20.
A.Y. 2016-17
ITA No. 228/KOL/2026
2. The issue raised in Ground No.1 is against the order of Ld. CIT(A) confirming the addition of ₹2,25,55,000/- as made by the Ld. AO u/s 68 of the Act in respect of share capital / share premium u/s 68 of the Income-tax Act, 1961 (the Act) by ignoring the fact that no such sum was received or credited in the books of account during the impugned assessment year the fact.
2.1. The facts in brief are that the assessee filed the return of income on 10.01.2018, disclosing the total income at ₹ 4,610/-. The case of the assessee was selected for scrutiny and statutory notices along with questionnaires were duly issued and served upon the assessee.The assessee company is an NBFC and engaged in the business of non-banking financing company. This assessee complied with the notices/questionnaire issued by the Ld. AO by filing documents/ evidences, return of income, audited balance sheets, etc.The Ld. AO observed from the same documents that the assessee had advances of ₹16,73,14,286/-during the preceding financial year which remains static. The Ld. AO also noted that the assessee has shown substantial shareholding in companies like M/s Himalaya Vyapaar Pvt. ltd. and M/s Maroon Infrastructure Pvt. Ltd., whose registrations have been cancelled by MCA. Accordingly, the assessee was required to explain the same by the AO. Finally, the Ld. AO noted from the balance sheet of the assessee that assessee has shown share capital to the tune of ₹4,94,15,000/- out of which the assessee received capital from M/s Himalaya Vyapaar Pvt. ltd. and M/s Maroon Infrastructure Pvt. Ltd. to the tune of ₹1,94,15,000/- and ₹1,06,000/- respectively. After taking into account the submissions of the assessee, the Ld. AO treated the money received from the aforesaid two companies aggregating to ₹2,25,55,000/- as on account of share capital money as unexplained cash credit and added the same to the income of the assessee. Similarly, the Ld. AO made an addition at the rate of 8% on the total advances of ₹ 14,73,14,286/- thereby, making an addition on notional basis of ₹1,17,85,173/- in the assessment frame u/s 143(3) of the Act dated 26.12.2016.
2.2. In the appellate proceeding the Ld. CIT(A)simply affirmed the order passed by the Ld. AO.
2.3. After hearing the rival contentions and perusing the materials available on record including the copies of audited balance sheets as at 31,3,2015 vis a vis 31.3.2016. We observe that during the year there is no change in the share capital. In other words, the share capital as on 31.03.2015 and 31.03.2016 was the same i.e. ₹4,94,15,000/-. We also note that there is no change in the current liabilities. Therefore the addition made by the AO on account of share application money received during the year u/s 68 of the Act, is just on the basis of imagination of the AO whereas the records before us proved otherwise. We even note that while issuing the notice dated 05.12.18, the Ld. AO noted that the assessee had shown substantial shareholding in M/s Himalaya Vyapaar Pvt. ltd. and M/s Maroon Infrastructure Pvt. Ltd. However, while making the addition, the AO has made an addition on account of money received which is totally at variance to what was stated in the notice. We also note that in the same manner the Ld. CIT(A) sustained the addition. Therefore, we set aside the order of Ld. CIT(A) and direct the AO to delete the addition. The ground no. 1 is allowed.
3. The issue raised in the second ground of appeal os against the order of ld. CIT(A) confirming the addition of ₹ 1,17,85,143/- as made by the AO @ 8% on total amount of advances appearing in the Balance Sheet.
4. The fact in brief are that the AO observed from the balance Sheet as at 31.3.2016 there total money advanced by the assessee was ₹ ₹ 16,73,14,286/- to various parties. We note that the assessee has given ₹14,73,14,286 as advance for property to M/s Avani Projects and ₹ 2.00 crore was advanced interest free to M/s Shakti Associates in the normal course of business way back in 2011. In our opinion, the disallowance of interest made by the Ld. AO is based on the surmises and presumption which has no basis. Moreover, assessee has not taken any money or loan interest which is used for making these advances. The addition was also sustained by the ld. CIT(A). T
5. Considering the facts of the case it is undisputed that advance on which the notional interest was applied @ 8% and added to the income of the assessee was given to M/S Avani Projects as advance for purchase of property. Moreover , the assessee had advanced the money out of our interest free sources available in the business. Therefore the addition made by the Ld. AO cannot be sustained as the assessee has advanced money out of its own interest free funds available. Consequently, we set aside the order of Ld. CIT(A) and direct the AO to delete the addition. The ground no. 2 is allowed.
6. The appeal of the assessee is allowed.
A.Y. 2019-20
ITA No. 229/KOL/2026
7. At the time of hearing, the Learned Council pressed Ground No. 5, which is against the notice issued u/s 148 of the Act, without jurisdiction, and therefore, entire assessment is bad in law.
8. The facts in brief are that the assessee company filed the return of income on 17-06-2020, declaring total income of Rs.34,23,650/- under the normal provisions and ₹58,63350/- as book profit u/s 115JB of the Act. The case of the assessee was reopened u/s 147 of the Act by issuing notice u/s 148 of the Act on 18.04.2023 which was not complied with by the assessee.The said notice was issued by ITO Ward 13(1),Kolkata, while the return of income filed by the assessee as per return of income dated 17.06.2020 u/s 139(1) of the Act was ₹34,23,650/-. The assessee made the necessary compliances and finally the assessment was completed vide order dated 21.2.2025 assessing the income at Rs,96,37,501/- by Assessment Unit , Income Tax Department.
9. The ld. AR vehemently submitted before us that since, the return of income of the assessee is above 20 lacs and assessee, who is based and assessed in Kolkata, which is a metro city, therefore, peculiar jurisdiction has not been followed by the authority while issuing notice u/s 148 of the Act dated 18.4.2023. Therefore, the notice issued u/s 148 of the Act is invalid and so is the consequent assessment framed. The ld. AR stated that notice u/s 148 of the Act, was issued by the ITO Ward 13(1), Kolkata, which is in violation of pecuniary jurisdiction of the CBDT instruction No.1/2011 (F. No. 187/12/2010-IT(A-1), Dated 31.01.2011. According to the said instruction, the ITO has pecuniary jurisdiction where the income is upto 20 lacs in the Metro Cities and 15 lacs in Mofussil areas whereas the DC/AC have jurisdiction above 20 lacs in Metro cities and above 15 lacs in the Mofussil areas.
9.1. After hearing the rival contentions and perusing the materials available on record, we find merit in the argument of the ld. AR that notice u/s 148 of the Act, was issued by the ITO Ward 13(1), Kolkata, which is in violation of pecuniary jurisdiction of the CBDT instruction No.1/2011 (F. No. 187/12/2010-IT(A-1), Dated 31.01.2011. According to the said instruction, the ITO has pecuniary jurisdiction where the income is upto 20 lacs in the Metro Cities and 15 lacs in Mofussil areas whereas the DC/AC have jurisdiction above 20 lacs in Metro cities and above 15 lacs in the Mofussil areas. The said instructions reads as under:-
9.2. In the present case, the assessee filed the return of income u/s 139(1) of the Act on 17.06.2020, disclosing total income of f34,23,650/-. We note that notice u/s 148 was issued on by ITO Ward 13(1), Kolkata which is in violation of the CBDT Instruction No.1/2011 (F. No. 187/12/2010-IT(A-1), Dated 31.01.2011. Therefore, the said notice has been issued by non-jurisdictional AO which is invalid and cannot be sustained. The case of the assessee find support from the decision of the Hon’ble Calcutta High Court in the case of PCIT vs. M/s Shree Shoppers Ltd. in ITAT 39/2023, IA No. GA/1/2023, dated 15.03.2023, wherein the Hon’ble Court has decided the issue in favour of the assessee by upholding the order of the Tribunal. The Tribunal in ITA No. 865/KOL/2018 for A.Y. 2012-13 in case of M/s Shree Shoppers Ltd. Vs. DCIT has held that notice issued by ITO, Ward 39(4), Kolkata, u/s 143(2) of the Act was without valid jurisdiction and therefore the consequent assessment framed by the DCIT, circle 9(2), Kolkata is invalid. The Hon’ble Tribunal followed the decision of jurisdictional High Court in case of PCIT vs. Nopany & Sons (2022) 136 taxmann.com 414 (Cal), while passing the order.
9.3. Considering the facts and circumstances of the case and also relying on the above decisions, we hold that the notice issued u/s 148 of the Act and also the consequent assessment framed are invalid and are accordingly quashed.
10. The appeal of the assessee is allowed.
11. In the result, both the appeals of the are allowed.
Order pronounced in the open court on 20.05.2026.
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